HOW IT WORKS
An executive bonus plan does not have to be offered to all employees which makes it appealing for business owners from a cost standpoint. In addition to other incentives offered by the company, an executive bonus plan allows the business to move funds out of the corporation in an efficient, tax-deductible manner, while the employee/executive gains the added benefit of the life insurance coverage, cash value, and any accelerated benefits included in the policy. Generally, after the employee/executive is approved for a life insurance policy the business pays the premium directly to the life insurance company. The employee/executive receiving the bonus pays income tax on the amount of the bonus in the year constructive receipt has occurred.
Executive bonus plans are appealing to business’ who are looking for qualified plan alternatives. Moreover, because the employee/executive is the owner of the policy they get to choose the beneficiaries, or used the policy’s cash value as needed.